In an effort to increase the scope of capital market products available in Kenya, the Capital Markets Authority is set to facilitate the establishment of an Exchange Traded Funds (ETFs) market to improve liquidity and ultimately deepen the capital markets.
An ETF is an investment fund traded like other securities on securities exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and typically trades close to its net asset value (NAV) over the course of the trading day. Most ETFs track an index or a futures contract. ETFs are part of a bigger group of financial instruments known as Exchange Traded Products (ETPs) that is growing in popularity as a method of investing, providing the opportunity for investors to diversify their portfolios while maintaining flexibility in trading that is similar to stocks. ETFs enable investors to gain broad exposure to stock markets in different countries and specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investment.
The CMA Acting Chief Executive, Mr. Paul Muthaura, explained that the introduction of ETFs will help address the issue of relatively low market liquidity, which has been one of the key challenges that the capital markets have faced over the years.
According to Mr. Muthaura the new product will mainly target individual investors who would affordably invest in a diverse number of capital market and commodity assets ranging from hard commodities such as commodity ETFs to international equities in the form of international equity ETFs. Ultimately, individual investors would have access to segments of the market that were previously inaccessible. ETFs will also make it easy to invest in a targeted portfolio of common stocks and bonds by investors purchasing just a single security.
As a follow up to this objective, CMA is seeking to engage a consultant to provide technical assistance in developing the policy and regulatory framework as well as recommendations on market infrastructure requirements for ETFs.
Source: CMA
